The Institute for Supply Management’s (ISM) non-manufacturing index rebounded in August, rising 1.4 points to 55.3, after deteriorating by 3.5 points in the month prior. The headline print came in slightly below market consensus for an increase to 55.6.
Gains were broad-based with most sub-indicators increasing on the month. Among the most notable were improvements in employment (+2.6 to 56.2 – following two consecutive monthly declines), business activity (+1.6 to 57.5) and new orders (+2.0 to 57.1). The backlog of orders and new export orders also improved 1.5 and 2 points to 53.5 and 55 respectively.
The prices paid sub-index (+2.2 to 57.9) rose for the third consecutive month. The recent improvements have undone the massive 8.4-point deterioration that occurred in May, bringing the sub-index slightly above April’s level.
Among the remaining indicators, imports (-1 to 50.5) recorded a slight deterioration. Meanwhile, inventories (-3 to 53.5) and inventory sentiment (-6 to 61) recorded more notable pullbacks, but both remain near their 12-month average.
Nearly all of the non-manufacturing industries surveyed reported growth in August, with Agriculture, Forestry, Fishing & Hunting, and Transportation & Warehousing being the only exceptions. At the same time, comments from survey contacts remained largely positive.
Key Implications
Just like its manufacturing equivalent, the ISM non-manufacturing index rebounded in August, suggesting that the weakness experienced in the month prior was transitory. The recent acceleration brought the headline index well into expansionary territory. Moreover, gains among the subcomponents were relatively broad-based, with rebounds in business activity, new orders and employment being particularly encouraging. Other survey details only corroborated the positive theme, with most industries reporting growth on the month and survey responses largely sanguine.
The continued improvement in the prices paid sub-index widened the gap from year-ago levels for the second consecutive month. With a similar trend evident in its manufacturing equivalent, both ISM surveys point to rising price pressures. While we are yet to see these pressures reflected in CPI and the PCE price index, the trend should still provide some comfort to the Fed as it meets to discuss monetary policy in two weeks’ time.
While the ISM receives the majority of survey responses late in the month, today’s results do not appear to be impacted from Hurricane Harvey (which made landfall on August 25th). Nonetheless, we expect these to come through in next month’s survey with both non-manufacturing as well as manufacturing activity being affected. As such, some volatility should be expected in the months ahead.
